works contract service

[Guest]

What should be the duty liability of recipient of service under RCM if he is a residential complex builder receiving service under works contract service if service value is 1,00,000. Will it be 50% of 12.36% of ( 25% of 1,00,000) in light of Explanation II of Not.No. 26/2012-S.T OR something else. Deptt. is insisting for 50% of (40% of 1,00,000). Please give your valuable advise.

[ashish chaudhary]

If service availed in relation to new construction, the liability under RCM would be as follows:

₹ 1,00,000*40%*50%*tax rate

If repair services etc. availed, tax would be ₹ 1,00,000(70%*50%*tax rate

[Rajagopalan Ranganathan]

Sir,

As per Notification No.26/2012-ST dared 20.6.2012 (with effect from 1.7.2012)-

2[12.	Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, except where entire consideration is received after issuance of completion certificate by the competent authority,- (a) for a residential unit satisfying both the following conditions, namely:- (i) the carpet area of the unit is less than 2000 square feet; and (ii) the amount charged for the unit is less than rupees one crore;	25	(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004; (ii) The value of land is included in the amount charged from the service receiver.]
	(b) for other than the (a) above.	30

 

If the carpet area is less than 2000 square feet and the amount charged is lex than one crore then the calculation will be 50% of 12.36% of ( 25% of 1,00,000). If the carpet area is more than 2000 square feet and the amount charged is more than one crore then the calculation will be 50% of 12.36% of ( 30% of 1,00,000).

However, as per Rule 2A (ii) (A) of Service Tax (Determination of Value) Rules, 2006 in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract.

However, since exemption has been granted by the Notification No. 26/2012-ST is 75% of the amount charged or 70% of the amount charged you can avail the most beneficial provision

AI Summary

Reverse Charge Mechanism: recipient liable for works contract service tax under valuation rules and available exemptions determine taxable share. Reverse Charge liability for works contract services hinges on whether services are original construction or repair and on interplay between the Determination of Value Rules and Notification No.26/2012-ST; original works use the works-contract valuation proportion, the recipient must discharge tax under RCM on that taxable share, and where the notification applies a reduced taxable base may be claimed with selection of the most beneficial provision.